Cell Phones, Contracts, and Capitalism
By Chris Neiger
T-Mobile has finally jumped on board with other cell phone providers and is reducing the costs of its early termination fees (ETFs) by setting up a prorated system of contract termination. Verizon Wireless implemented a similar system almost two years ago and AT&T set up its reduced ETF system this past May. Which leaves Sprint/Nextel as one of the major cell phone carriers that as of yet has only announced they will cut their ETFs but hasn't set up any plan. The new T-mobile ETFs will start on June 28 with all new customers that have a one or two-year contract, or existing customers renewing their contract. Here's the breakdown of the new fees:
- 91-180 days left on contract: ETF drops from $200 to $100
- Fewer than 91 days: $50 fee
- Last 30 days: Either $50 fee or your standard monthly charge, whichever is cheaper
Instead of beating up on the big bad cell phone companies, which can easily be done by just about anyone who's owned a cell phone, we need to keep in mind that these are contracts. They aren't just pieces of paper we sign so they will let us walk out the door with a free phone. At the same time, the cell phone industry needs a refresher course on Competition 101 to realize that consumers will eventually go elsewhere when they find a better deal.
Let's talk about the contracts for brief moment.
They're a pain. We walk into the cell phone store, browse around for a cool phone (or for some of us, the cheapest one we can find), and pick out a plan from those tri-fold U.S. maps with about 27 different shades of the same color showing you different coverage levels. Finally they start typing on the computer and 10 hours later we have a new phone, a new company, and most likely a two-year commitment to some provider that may or may not have "best calling network" in the area. Side note: Is it me, or does every single carrier literally claim that their network is the largest, strongest, most advanced receive-a-signal-in-the-ice-caps-of-mars network?
So we've got our new phone and we've got our new company, now what? Well, we squint our eyes, hold our breath and call our friend to make sure everything is working on that expensive phone that looked like brushed aluminum (but we'll learn it's just cheap painted plastic when we drop it for the first time) and hope that it will actually sound halfway decent. Herein lies the problem. We've had to agree to something before we can actually use it. We've signed away hundreds of dollars, or thousands, in our one or two year contract before we could even turn the phone on and listen to what the ear-piece quality sounds like. It's not really a fair proposition, so some cell phone companies have set up a 15 or 30-day trial period to let people test out their network and phones. Now that may seem like it's a fair system, but that trial period usually isn't enough time to find out things like:
- Your carrier drops calls as often as Samuel L. Jackson stars in movies
- You won't get that text message until days after your friend wanted to see that cool new movie
- You live in the 27th shade of color on their coverage map but you thought that meant you had the best coverage
OK, so I beat up on the cell phone companies just a little bit. But here's my counterpoint... we still signed the agreement. When we enter into our cell contracts, we're entering into a legally binding agreement with a company. As lame as that may be, we're still responsible to fulfill our part of the agreement; which is to pay our monthly bill on time and for a set amount of months. If we want out, they have every right to charge us money for breaking the agreement. We all know this, but when problems start happening with our phone or we're being charged for packages we didn't agree to we all feel liked we've been had.
Recently, a class action suit filed by some customers against Sprint/Nextel claiming that their ETFs were too harsh, was struck down by a California state jury. The customers weren't awarded anything, not even the satisfaction of winning, because the jury ruled that the fines were legal.
Consumer Options
Luckily for us all, things are starting to go more in the consumer direction. Some companies have plans that don't require any contract, T-Mobile is one of them. Today, Virgin Atlantic also announced that they would start a no-contract plan on July 1 that will be one of the cheapest flat-rate plans available right now. On top of that, the FCC is starting to look into cell phone affairs more when it comes to ETFs and is also pushing for consumers to have the option of buying what cell phones they want and use them for any company they like. These may seem like small steps, but they allow us to have more options of where we go for our service and what phones we can buy. And eventually, it gives us the freedom to shop for the best quality at the best price. So the next time you're overcharged on your bill or your company's customer service representative doesn't understand the meaning of the word "service', just keep in mind that things are moving ahead in cell phone business, and both the consumers and the companies will be the better for it.